Such Language!

Can saving face help save a struggling bank? Chuck Frost, the president and chief executive officer of First State Bank in Winchester, Ill., believes it can. His $36.3 million-asset bank is negotiating the terms of a cease-and-desist order with regulators, and Frost is worried about the language that will be used in the public document.

He acknowledges that First State needs major repairs, but he said that the order's release could accelerate an outflow of deposits. "We know what we've done wrong," Frost says. "I don't see how telling everyone that we are the dumb kids on the block is going to help us get back in shape."

Bankers facing such a predicament now have an advocacy group. Community Bankers Revolt, started by Jeffrey C. Gerrish, a partner at Gerrish McCreary Smith PC in Memphis, is lobbying regulators to tone down the language of enforcement actions and to emphasize what banks must do to right themselves, rather than how they have erred.

"I've never thought that the goal of an enforcement action is to punish the bank publicly; they are meant to correct problems that are revealed in the examination," Gerrish says. "I think the whole process should be more constructive, instead of something that hurts the bank."

The most egregious type of order is the cease-and-desist one issued by the Federal Deposit Insurance Corp., he notes; though a bank that receives such an order is clearly facing difficulty, the introductory language that orders it to stop "unsafe and unsound banking practices" is boilerplate that has not been changed since at least the 1970s. Gerrish argues that regulatory orders should be more like the Federal Reserve Board's, which are light on introductions and go straight to the steps the institution is ordered to take.

"All that language at the top is unnecessary and can be inflammatory," he says. "Just get to the corrective action."

Given the public anger at the banking industry and the Obama administration's pledge to increase government transparency, Gerrish's goal may be a long shot. Even observers who agree that enforcement orders can be damaging say they are skeptical that regulators would be receptive to changing them.

"That's like asking the cops to be nicer to you," said Rusty Cloutier, the president and CEO of the $1 billion-asset MidSouth Bancorp Inc. in Lafayette, La., which was under a memorandum of understanding with its regulator during an earlier crisis in the 1980s.

First State's Frost says the danger for his bank is not the loss of pride but the loss of liquidity. As rumors have swirled about the bank's viability over the last few weeks, it has lost $1 million of its deposits — about 3 percent of the total.

The language of the cease-and-desist order could hasten that march, especially if the local press harps on the details, he says.

First State is not working with Community Bankers Revolt. Nevertheless, Gerrish describes the same fears. Harsh language "can lead to an erosion of confidence. If it was necessary, fine. But it isn't."

Gerrish says he has begun heralding the cause where he can. He met in March with officials of the FDIC, the Fed, the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Representatives from banking trade groups also attended the meeting.

Gerrish also says a recent consent order from the OCC against Florida Capital Bank in Jacksonville was a "kinder, more gently" worded agreement. Though he does not know if he can take credit for that, he says he is encouraged by it.

A representative for the OCC says that there has not been any change, and that the language of each agreement is different.

Gerrish says he has to be protective of the group's membership and supporters, out of fear of punishment. He will not give an exact number of banks that have taken up his cause, but he says that he has talked to dozens of bankers about the concept, and that there has been significant interest. "They all want to stay anonymous," he adds. "They are afraid of retribution; it does exist."